Home
Finance Resources
Investment Planning
Banking
Finance
Stock Market
Futures & Options
Trading
Mutual Funds
Insurance
Taxation
Enquire
Home » Global Futures

Futures


Futures or futures contracts are derivatives bought or sold on a futures exchange. Futures are contracts to buy or sell a particular commodity at a specified price on a certain date in the future. The underlying asset could be commodities, energy, currencies, government bonds or other financial instruments. The future date on which the contract is executed is known as the final settlement date or the delivery date. The predetermined price is known as the settlement price. The mechanism for settlement is provided by the clearinghouse of the futures exchange.

Common Features of Futures

The common features of futures are:

  • Futures are exchange-traded derivatives.

  • Futures are highly standardized. This standardization is ensured by specifying (a)

  • The underlying asset � The particular asset as well as the quantity are specified in the futures contract.

  • The currency - The currency in which the contract is to be executed is also specified.

  • Settlement - The delivery month and the last trading date are also mentioned in the contract.

  • Futures are used for hedging, particularly in a bear market. Those who have an interest in the underlying asset can protect themselves from the risk of price changes via futures contracts.

  • Futures have lower transaction costs than other debt instruments.

  • They also have high liquidity, since buyers and sellers of futures contracts can be found easily.

Options: Options are those financial instruments that provide its holders the right to trade the underlying asset at a predetermined price. A �call� option gives a trader the right to buy the underlying asset at a given price. A �put� option gives a trader the right to sell the underlying asset at a given price. This given price is known as the �strike price.� The owner of an option has the right, but not the obligation, to buy or sell an asset.

Pricing of Futures

When the price of the underlying commodity in a futures contract is higher than the spot (immediate) price, the situation is known as contango. When the price of the underlying commodity for future delivery is lower, the situation is known as backwardation.

The price of a futures contract can be calculated with the following formula

futures

where,

F(t) = future value

S(t) = present value

t = time

T = maturity

r = rate of return

Futures: Types of Settlement

There are two types of settlements in the futures market � physical settlement and cash settlement. A futures contract is physically settled if the underlying asset is actually delivered in exchange for the settlement price. This is not the case with cash settlement, where no physical delivery of the underlying asset takes place. Instead, the futures contract is settled for money depending on what the market value of the contract is expected to be at maturity. Speculators opt for cash settlements, which those with interest in the underlying commodity opt for physical settlement.

The futures market is not for the novice trader. It is critical that you check your financial situation, investing goals and risk appetite before venturing into futures trading.

Back



Keywords:

Futures, Financial Options, Options and Futures, Currency Options, Benefits of Currency Options, investment planning, Risks of Currency Options, Benefits of Corn Futures, Risks of Corn Futures, Corn Futures, Benefits of Corn Futures, Risks of Corn Futures

Domain Registration | Windows Hosting | Linux Hosting | Java Hosting | Virtual Dedicated Server | Dedicated Server | Reseller Web Hosting | Unlimited Windows reseller hosting | Unlimited Linux reseller hosting | Cheap Windows reseller hosting | Cheap Linux reseller hosting | Cheap Windows hosting | Best Windows hosting | Windows hosting Multiple Domains | Unlimited Windows hosting | Compare hosting plans | Cheap Linux hosting | Best Linux hosting | Linux hosting Multiple Domains | Unlimited Linux hosting | Cheap asp.net hosting | Best asp.net hosting | unlimited asp.net hosting | Cheap asp.net reseller hosting | Unlimited asp.net reseller hosting | Java Features | Cheap Java hosting | Best Java hosting | unlimited Java Hosting | Unlimited Linux reseller hosting | Java Hosting Multiple Domains| | Matargashti Full Song | Matargashti mp3 Download | Matargashti Video Download | Matargashti Song Tamasha | Prem Ratan Dhan Payo Songs Download | Prem Ratan Dhan Payo Songs mp3 Download | Prem Ratan Dhan Payo Songs Video Download | Pinga Song Download | Pinga Full Song mp3 Download | Pinga Song mp3 Download | Pinga Song Video Download | Latest Bollywood Updates | Bollywood Updates | Prem Ratan Dhan Paayo Songs Download|
© ProfitGuruOnline-2024. All Rights Reserved.